Answered step by step
Verified Expert Solution
Question
00
1 Approved Answer
You want to buy an ice-cream truck for $60,000, with the expected returm: 50% next year You have only $6,000 Mom lends $24,000 (interest rate:
You want to buy an ice-cream truck for $60,000, with the expected returm: 50% next year You have only $6,000 Mom lends $24,000 (interest rate: 20%) Dad chips in $30,000 al What is the rate of return fro you, mom and dad after one year, if the actual rate return of the project is indeed 50%7 return 50% TA 90000 Mom 28800 Rmom 20.00% left over 61200 R dad-R me 70.00% b) What is the rate of return for you, mom and da after one year, if the actual rate of return is now -20%? retum -20% TA 48000 Mom 28800 Rmom 20.00% left over 19200 R_dad=R_me -46.67% Now assume that the actual rate of return on asset is -80%, and further assume you hold the genral partnership, dad holds the limited partnership. (Hint: What's the difference between ge c) In this case, what is the rate of return for you, mom and dad? return 80% TA 12000 Mom 28.800 Rmom 20.00% -16800 R dad -100.00% R me -380.00% % left over D) Now, assume that you and dad have an option to invite uncle Tom to invest $6,000 and pay off the debt from mom. In order to make the decision whether to invite uncle Tom, you are predicting the rate of return of the project one year from now. Can you discuss under what situation you will choose to invite unde Tom? Why? (Hint: you need to discuss the predicated rate of return of the project, and find out a breakeven value of the project rate of return. What is this breakeven predicted rate of return?)
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access with AI-Powered Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started